ECB President Lagarde: Central Bank Has "A Range of Options" to Address Potential Energy Inflation Shock

On March 25, European Central Bank President Christine Lagarde stated that faced with the energy crisis triggered by the Iran conflict, the ECB possesses multiple policy options to address potential inflation shocks, with specific measures to be adjusted based on the scale and duration of the shock.

Lagarde emphasized that the #European Central Bank will not be "paralyzed by indecision," and they have prepared "a series of gradual response measures" in monetary policy, though specific implementation details were not disclosed.

She further stated that the central bank will not act hastily before obtaining sufficient information about the scale, duration, and transmission channels of the shock. Currently, the ECB maintains its existing interest rate level unchanged.

Meanwhile, the central bank has pledged to make every effort to maintain the inflation rate at the 2% target level, and this commitment is "unconditional." Even if oil and gas prices continue to rise, causing prices to surge significantly, the central bank will adhere to this target.

Last week, the ECB maintained interest rates unchanged and released a series of economic scenarios, indicating that inflation risks do not develop linearly, but rather show a pattern where the longer and more intense the shock, the faster prices and wages rise.

Analysts point out that for supply shocks that are smaller in scale, short in duration, and one-time in nature, the central bank can temporarily disregard them; however, if the deviation of inflation expectations from the target value intensifies and persists, the necessity to take corresponding action will increase accordingly.

Lagarde acknowledged that although monetary policy lacks the power to directly lower energy prices, the ECB will closely monitor whether the current rise in oil and natural gas prices will trigger "generalized inflation."

She specifically mentioned that back in 2022, the inflation shock caused by the Russia-Ukraine conflict left "a deep mark" on the economic sphere. This experience has led the European Central Bank to remain highly vigilant in facing the current situation.

However, in early 2022, driven by strong demand and post-pandemic supply shortages, the inflation rate had already reached 5%. Nowadays, moderate economic recovery, fiscal policy tightening, and interest rates near 2% have played a role in suppressing inflation.